Trade Costs, Conflicts, and Defense Spending
AbstractThis paper develops a quantitative model of trade, military conflicts, and defense spending. Trade liberalization between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 404.
Date of creation: 01 Jul 2013
Date of revision:
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More information through EDIRC
general equilibrium; gains from trade; defense spending;
Other versions of this item:
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
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